Britain’s service sector activity in August grew at its fastest pace since April, with price pressures easing, suggesting a more favorable inflation outlook and economic stabilization

following the July elections.

The S&P Global UK Services Purchasing Managers Index (PMI) rose to 53.7 in August from 52.5 in July, surpassing an earlier estimate of 53.3. This marked the highest reading in four months, pointing to improved business sentiment following the July 4 election that saw Prime Minister Keir Starmer's Labour Party achieve a significant victory.

Service companies reported cost pressures and selling prices rising at the slowest pace since early 2021, a development that is likely to be well-received by the Bank of England ahead of its interest rate decision on September 19. The central bank had lowered borrowing costs in August for the first time since March 2020, reducing rates to 5.0% from a 16-year peak of 5.25%. Investors are anticipating a further rate cut before the year ends.

"August data highlighted a recovery in the UK service sector's performance as improving economic conditions and political stability supported customer demand," said Tim Moore, economics director at S&P Global.

Despite the overall positive trend, the survey indicated that business optimism for the year ahead dipped slightly, and employment growth slowed. Moore noted that while expectations of interest rate cuts and improving economic conditions helped maintain confidence, some firms expressed concerns about policy uncertainty leading up to the autumn budget.

Chancellor of the Exchequer Rachel Reeves has cautioned that tax increases may be necessary in the upcoming October 30 budget to relieve pressure on the public finances.

Meanwhile, the composite PMI, which merges data from the services and manufacturing sectors, rose to 53.8 in August from 52.8 in July, with an upward revision from the preliminary estimate of 53.4. August also saw UK manufacturing output expand faster than any other developed market surveyed by S&P Global. Photo by Dwight Burdette, Wikimedia commons..